Factor Affecting Stock Market

factors affecting stock market

In the current scenario of the Indian stock market, each investor is required to be alert enough about what is happening in the market. For that purpose, it is significant for each and every investor to be aware of major factors affecting stock market. Movements in the stock market can be quite volatile, and sometimes movements in share prices can seem to collapse due to economic factors. Stock and the stock market can be affected by hype about a company releasing new product or services. So, here, in this article, we are going to provide you with 8 factors affecting stock market.

#1. Company Performance

The factors affecting stock market is “Company Performance”. As the company declares their earnings and profits, along with their future estimates, if these are not similar to their estimations or results than stocks performance would be adverse and stock can collapse. Also, if the company faces any kind of accounting errors or scandals, then it can lead to a negative outlook for their stock price and effect on the company performance. Negative factor constitutes a change in management, fall in sale revenue, employee layoffs, product or services, etc.

#2. Economic Factor (Inflation & Deflation)

Economic factors are quite significant factors affecting stock market. Changes around the world can affect both the economy and stock prices. Inflation means higher consumer prices. This often slows sales and reduces profits. Higher prices will also often lead to higher interest rates. Falling prices tend to indicate lower profits for companies and decreased economic activity. Stock prices may go down, and investors may start selling their shares and move to fixed-income investments like bonds. If the economy is on the path of expanding and the GDP is consistently growing, the stock market may rise.

#3. The policy of RBI

factors affecting stock market

As we all know that the Reserve Bank of India (RBI) is the central bank in India is the body concerned for regulating the monetary policies in India. RBI declare its monetary policy in every two months. Any increase or decrease in REPO and Reserve Repo Rates affect the stock market. The RBI regulates interest rates to stabilize the economy of the country.

#4. Investor Sentiment

One of the key factors affecting stock market is the mood of investors. Investor sentiment or confidence can cause the stock market to rise or fall. In a weak market where inventory prices are sliding, and investor confidence is fading. It happens during when an economy suffers from inflation and generally an economy is in recession and unemployment is high, with rising prices. If investor received any bad news, they would sell their stock. The phrase, “Marketing sentiment” indicates the psychology of market participants, irrespective of being done individually or collectively. Also, we would like to mention that the Market sentiment is subjective, biased and obstinate according to one’s interest or policies.

#5. Changes in Economic Policy

Every industry runs on government policies. As a new government comes into power, it may decide to make new policy. Government’s new policy may be profitable for some companies, but at the same time, it may be disastrous for other companies. Government Policies may lead to changes in inflation and hike of interest rates. Policies can also influence the stock market depending on the effect of the policy on the market.

#6. Currency Trends

factors affecting stock market

Changes in exchange rates will increase or decrease the cost of doing business in a country, which will affect the price of stocks of companies doing business abroad. The exchange rate of the Indian Rupees keeps fluctuating with other currencies. When rupee gets low with respect to other currencies, it causes Indian goods to become expensive in the foreign market. The companies involved in overseas operation get drastically affected.

#7. Political Affairs

A rise of a particular political party can be hugely beneficial or lossy due to the party’s own judgment regarding the industry. A tug of war ending between two political parties after election results may also fluctuate the market either up/downside. The agenda of political parties also affect the direction of the stock market. An undefined and weak manifesto affects stock market to slide.

#8. Global and Natural Factor

The last but one of the most important factors affecting stock market is Global and Natural Factor. The Stock market can be affected by the occurrence of World events such as war, civil unrest, and terrorism. Any global incident which affects the cost of manufacturing, import or export of goods in a country, influence the stock market. It also reduces the spending/investing capacity of society due to losses of movable or immovable assets. Natural calamity and human-made disasters with economic consequences also wreak havoc on the stock market. This result in lesser consumption of the product, leading to lesser sales and revenue of the companies.

So, these are 8 important factors affecting stock market. So, do keep these factors in mind while investing in the stock market. Hope you enjoyed reading here. If you have any query, do ask them by commenting in the section provided below. Thanks for reading.

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